Chapter 14 Notes

Chapter 14 Notes - Bob Ryan DePaul University Class Notes...

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Bob Ryan DePaul University Class Notes Accounting 380 Tax Treatment of Individuals and Property Transactions Text 2012 Chapter 14 – Property Transactions: Gain or Loss and Basis Considerations 1. Determination of Gain or Loss a. Realized gain or loss: 1. difference between amount realized from sale or other disposition of the asset and its adjusted basis. 2. sale or other disposition, includes trade-ins, condemnation, thefts, bond retirements. b. Amount realized from disposition: 1. total consideration received, including cash, FMV of property received, mortgages/loans transferred to buyer. a. FMV = Value of asset determined by arms length transaction, i.e. amount set by transaction between willing buyer and seller with neither obligated to enter into transaction. 2. reduced by any selling expenses. c. Adjusted Basis: 1. original cost (or other adjusted basis) plus capital additions less capital recoveries. d. Capital Additions: 1. cost of improvements and betterments to the property that are capital in nature and not currently deductible. e. Capital Recoveries: 1. amount of basis recovered through: a. depreciation or cost recovery allowances b. casualty and theft losses (and insurance proceeds) c. certain corporate distributions d. amortization of bond premium e. easements f. Recognized gain or loss: 1
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1. amount of realized gain (loss) that is included in (deducted from) gross income. a. realized gains and losses are not always recognized. 1. realized gains may be deferred or excluded. 2. realized losses may be deferred or disallowed b. realized losses from the sale, exchange, or condemnation of personal use assets (personal residence) is not recognized for tax purposes. Exception - casualty or theft losses. c. any gain realized from the sale or other disposition of personal used assets is generally fully taxable. 2. Capital Recovery Doctrine: a. Taxpayer is entitled to recover cost or other original basis of property acquired and is not taxed on that amount. b. To extent received only investment back upon disposition of an asset, taxpayer has no gain. 3. Basis Considerations: a. Original basis of an asset is generally its original cost b. Bargain purchase assets have a basis equal to their FMV 1. bargain amount may be income to purchaser (as compensation if an employee, or a dividend if a shareholder) c. Identification problems: 1. security sales where specific identification not possible, use FIFO to compute basis. d.
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Chapter 14 Notes - Bob Ryan DePaul University Class Notes...

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